George Osborne rocked by a £100bn budget black hole as senior Bank official declares financial crisis 'as bad as a world war'

Government borrowing will be nearly £100billion higher than expected over the next five years as economic growth remains ‘weak and inadequate’, according to business leaders.

The report published today by the British Chambers of Commerce warns that the Chancellor’s plans have been blown wildly off course, with weak economic growth meaning it will take far longer than planned to wipe out the record deficit racked up by Labour.

Added to which, senior Bank of England figure Andrew Haldane said this financial crisis would ravage family incomes for generations, with the costs still likely being paid by our grandchildren.

Andrew Haldane said people had every reason to 'feel upset', while Osborne prepares to cut welfare bill

In his sober analysis if the turmoil inflicted by the 2008 crash, Mr Haldane - executive director for financial stability at the Bank - said: 'If we are fortunate, the cost of the crisis will be paid for by our children. More likely it will still be being paid for by our grandchildren.

'In terms of the loss of incomes and out-puts, this is as bad as a world war - that's the scale we're talking about.'

The BCC warns that George Osborne
will miss his key target of reducing national debt as a percentage of GDP by 2015-16.

‘There will be a delay of two to three
years,’ the report claims.

It will make grim reading in the Treasury on the eve of the Autumn Statement.

The
BCC calls for ‘a laser-like focus’ on growth – including
investment in key infrastructure projects and the creation of a business
bank.

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‘We have always
been behind the Chancellor’s aim of reducing the deficit, but this has
to be supported with the right conditions that allow businesses to
thrive or we will fail to see the growth the economy so desperately
needs,’ says BCC director general John Longworth in the report.

‘The fact remains that growth is still too weak. Politicians need to show courage, imagination and leadership. Our new forecast highlights the challenges still facing the UK economy over the months and years ahead.'

Although there was some good news for this year, with GDP now expected to shrink less than expected - by 0.1 per cent rather than 0.4 per cent - it said this was 'entirely due to the stronger-than-expected' last quarter, helped by the Olympic Games. The
BCC has revised down its growth forecasts for 2013 and 2014 to 1 per cent and 1.8 per
cent respectively – much weaker than its September forecast of 1.2 per cent
and 2.2 per cent.

It also warns that borrowing will be higher, at £132billion this
year compared with the £120billion pencilled in by the Chancellor in March.

In total, the government will borrow £96billion more than anticipated over the next five years as tax receipts disappoint due to the stunted growth.

'Many firms are expanding exports, investing, and creating jobs, but more must be done to support the aspirations of growing companies that will be the wealth creators of tomorrow,' Mr Longworth said.

Osborne admitted at the weekend that curbing the UK's financial deficit was 'taking longer' than planned.

To meet his main commitment, to eliminate the structural deficit, he is expected to have to find more than £23billion through further cuts and tax rises by 2017.

Key out-of-work benefits are expected to be frozen and the best-off can expect to lose some of their pension tax breaks.

Measures to stimulate economic growth are expected to include infrastructure projects backed by £40billion of state guarantees, help for smaller businesses that want to export, and a postponement of the 3p a litre rise in fuel duty to put more money in people’s pockets.

Mr Haldane, making his world war comparison, said in an interview on Radio 4: ‘It would be astonishing if people weren’t fed up on the street, asking big questions about where finance has gone wrong. There is every reason why the general public ought to be deeply upset by what has happened and angry.’

A
separate report by the Institute of Directors calls for deeper cuts to
public spending and further investment in infrastructure such as
airports and broadband.

IoD
chief Simon Walker said: ‘It is only through controlling public debt
that Britain will retain the confidence of the markets and create strong
foundations for recovery.’